The United States of...Europe?

Originally posted on The Sovereign Investor on June 26th, 2014.

Back in November 2012, Barack Obama won another four-year stint at 1600 Pennsylvania Avenue, and I commented on his acceptance speech in the Sunday Sovereign Digest, writing that the President was wrong in his Pollyannaish sentiment that “We are an American family and we rise or fall together as one nation and one people.”

What I wrote specifically was this:

America is not a family that rises and falls together. America is a deeply — no, fundamentally — divided nation with chasms so wide as to likely never again be sewn together outside of war. Just as we are now seeing the emerging birth of the United States of Europe, we are at the same moment in the early throes of the dismantling of the United States of America.

A month before that, in October 2012, I was gathering information in Estonia for mydiversified investments research and met with a leading economist who was once a member of the old Soviet Politburo and was intimately involved with Estonia’s integration into the European Union. As we shared coffee and homemade apple strudel at his small house on a wooded lot on the outskirts of Tallinn, I said to him, “I think we’re moving toward a United States of Europe.” His reply: “Yes … there is a strong will to build up a United States of Europe, a strong political will, but I don’t see from an economic and security point of view this would be a success.”

I point out these anecdotes for one reason: I was right.

Next week, on July 1, Italy assumes the European Union’s rotating presidency. And the Italian government earlier this week announced that its primary goal during its tenure is … pushing for a United States of Europe. Italian Prime Minister Matteo Renzi even used that specific term in announcing Italy’s ambition.

“A stronger and more cohesive Europe is the only solution to solve the problems of our time,” Mr. Renzi said. “For my children’s future I dream, think and work for the United States of Europe.”

Since 2009, when the European debt crisis began to unfold, one commentator after another — including a certain Noble Prize-winning economist — insisted that the European Union was not long for this world and that the Continental currency, the euro, was doomed. The economist-who-won’t-be-named even laid out a scenario in 2012 by which the EU would face political and economic collapse and the euro would vanish. He ended his brief missive with this: “And we’re talking about months, not years, for this to play out.”

Well, it has been years now and the EU is still among the living. It has even expanded. Croatia joined the EU in 2013, while Estonia and Latvia moved in the euro zone in 2011 and 2014, respectively. Lithuania will start using the euro this coming January.

I have no clue how the commentators came up with their analysis. Maybe they spent too much time listening to one another’s half-baked theories. Maybe they read too much in the popular press, where every nut-bag thesis was presented as a viable option, if not likely to happen immediately. Maybe they spent too much time in England, where the Brits were, secretly, all too happy to talk up a euro crisis, since the U.K. never joined the euro zone.

Me? I spent time traveling across Europe and talking to people, like cab drivers in Spain, some hotel clerks in Munich, a waitress in Bucharest and a waiter in Warsaw. I talked to the economist in Tallinn (no big fan of the euro) and another in Barcelona. I talked to money managers in Zurich, corporate executives in Stockholm and an EU parliamentarian in Bratislava. From north to south, east to west, I never heard a single person — not one person! — ever tell me the euro should go away and the European Union should split apart.

The media was yapping about an imminent implosion, and reporters found all sorts of ne’er-do-wells and agitators (who would protest a sunrise) to talk about their anger with the EU and their desire to leave the euro behind. The media pretended these voices represented the majority and, thus, would bring about cataclysmic change … when I knew from my cross-Continent travels that they were, at best, a bellicose minority — and an exceedingly small minority, at that. At the same moment I was writing about the United States of Europe, media in the U.S. and Britain were penning stories about Germany printing piles of new Deutsch marks as the Germans prepared to flee the EU and the euro.

That was never going to be the case.

The EU Was Never Going Away

I don’t know how else to say it. The EU was never going away. The Germans were never going to leave the union or the euro. And, at risk of repeating what I have said many times over the last few years, here’s why:

EU member states need one another if they’re to survive in a global economy dominated by the U.S. and China. As a unified continent, Europe is an economic and consumer force, with a population larger than America’s. As individual nations, they’re all but meaningless in the global economy, save for Germany, France, the U.K. and maybe Spain. Slovenia? Slovakia? Bulgaria? Belgium? Chinese and U.S. manufacturers don’t really care about them individually.

And the thing is, the only reason Slovenia, Slovakia and the others matter is because they all share open borders and a common currency. They no longer face hours or days of delays shipping goods between Germany and Greece. There are no currency conversion costs swapping marks for drachma — which explains why the Germans, despite their posturing at times, were never heading for the exit.

Of all the EU nations, Germany’s economy has benefited the most. The EU and the single currency are the reason Germany’s economy has thrived: The rest of Europe wants German quality, and now they can afford it because all the barriers have come down. Re-establish those barriers and few Europeans, particularly in the east, can afford German products … and Germany, Inc. suffers tremendously.

From the very first moment of the debt crisis, those facts were known. They were the facts that were destined to hold the EU together like financial Gorilla Glue.

And they are the facts that Italy’s Matteo Renzi alludes to when he says that “a stronger and more cohesive Europe (a United States of Europe) is the only solution to solve the problems of our time.”

Oh, the Profits You Will Make

So what’s your take away from all of this?

Well, it’s the same take away I’ve talked about all throughout the European debt crisis: to expand your portfolio of diversified investments, you need to own permanent exposure to the euro through a product such as the EverBank euro CD. (For the sake of full disclosure, we receive a marketing fee based on our relationship with EverBank. But honestly, I’d tell you about the opportunity because it is the smartest and safest way I know to invest in currencies.)

Europe is moving in the right direction as a Continent and an economy. Cumulative European debt, for all the angst it has created in recent years, is just $26,000 per citizen. In the U.S. it’s more than double, at $55,000. European politicians, for all their cultural differences, are moving toward unity. The U.S. is moving toward ever-greater divisions.

As Europe progresses toward the United States of Europe, the monetary and fiscal challenges exposed in the debt crisis will be fixed, and the Continent will emerge as a stronger force than the original United States that you and I know.

And the euro will be a stronger currency.

Until next time, stay Sovereign …

Jeff D. Opdyke
Editor, Profit Seeker

The Sovereign Investor